Attorney General John M. Formella, along with a bipartisan coalition of 44 of his fellow attorneys general, submitted a letter today supporting a proposed U.S. Department of Labor (Department) rule that would require greater transparency from pharmacy benefit managers (PBMs) that service employer-funded health plans covered under the Employee Retirement Income Security Act of 1974 (ERISA).
“Prescription drug costs continue to place a significant burden on families and employers, and greater transparency in how pharmacy benefit managers operate is a necessary step toward addressing those pressures. When PBMs function without clear disclosure of how they generate revenue or set pricing, it becomes harder for employers to control costs and for patients to access affordable medications,” said Attorney General Formella. “We support this proposed rule because it strengthens accountability, improves transparency in the prescription drug supply chain, and ensures state and federal authorities can work together to protect consumers and promote fair, competitive markets.”
Created in the late 1960s to process prescription drug claims, PBMs now play a far broader and more powerful role in the health care system by managing prescription drug benefits for health insurers. This includes, among other things, negotiating rebates and reimbursements with drug manufacturers and determining which drugs are covered and at what cost.
Approximately 136 million Americans receive health coverage through an employer, either their own job or a family member’s, and the proposed rule responds to concerns that employers often lack visibility into how PBMs are making money or why drug costs change. It would require PBMs to disclose twice a year how they generate revenue and would give employers the right to audit them. PBMs have also long sought to avoid state regulation by claiming federal preemption under ERISA. The attorneys general urge the Department to clarify that the proposed rule does not preempt state PBM transparency laws.
Further, in the comment letter, the attorneys general ask the Department to clarify that it supports working with them to enforce the rule. According to the coalition, there should be mention that nothing in the rule is intended to prevent the Department from referring matters to state attorneys general, requesting their investigative or enforcement assistance, or coordinating with them when the Department discovers violations of state law.
Today, the top three PBMs manage approximately 80% of prescription drug claims. Due to the power imbalance held by PBMs and the negative effects of such power on drug pricing, all fifty states, the District of Columbia, and Puerto Rico have enacted laws to rein them in. Common provisions include limits on patient out-of-pocket costs, bans on “gag clauses” that prevent pharmacists from telling patients they could save money by paying for their prescription out of pocket instead of using insurance, and protections against unfair treatment of independent pharmacies.
In submitting today’s comment letter, Attorney General Formella joins the attorneys general of Alaska, American Samoa, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, the District of Columbia, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Virginia, Washington, West Virginia, and Wyoming.
